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Dionne v. Headwaters at Banner ELK

United States District Court, W.D. North Carolina, Asheville Division

June 11, 2019

HEADWATERS AT BANNER ELK, et al., Defendants.



         THIS MATTER comes before the Court on a verified motion to dismiss filed by P. Wayne Sigmon, the Chapter 7 Trustee (the “Trustee” or “Appellee”) for Headwaters at Banner Elk, LLC (the “Debtor”), pursuant to Rule 8013 of the Federal Rules of Bankruptcy Procedure. The Trustee seeks an order from this Court dismissing the appeal filed by Steve Chambers and Gary Dionne (collectively, the “Appellants”). (Doc. No. 3). Also pending are the following motions: Motion to Intervene by The Headwaters Property Owners Association, Inc., (Doc. No. 7); Amended Motion to Intervene by The Headwaters Property Owners Association, Inc., (Doc. No. 11); and Motion for Extension of Time for Briefs of Appellee and Intervening Appellee, (Doc. No. 20). For the following reasons, the Court finds that Appellants lack standing to file this appeal, and the appeal is therefore dismissed. Furthermore, the remaining motions will be denied as rendered moot by this dismissal.[1]

         I. BACKGROUND

         A. Procedural Posture of the Bankruptcy Case

         The Debtor Headwaters at Banner Elk, LLC is a North Carolina limited liability company formed in 2005 to acquire, operate, and develop certain real property in Avery County, North Carolina. The development is a planned community known as “The Headwaters at Banner Elk.” On June 9, 2015 (the “Petition Date”), the Debtor filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. The bankruptcy court converted the case to a case under chapter 7 and appointed P. Wayne Sigmon as Chapter 7 Trustee on February 15, 2017. Mr. Sigmon is the Chapter 7 trustee for the Debtor's bankruptcy estate.

         B. Background Facts Regarding the Debtor and the Headwaters at Banner Elk

         The Headwaters at Banner Elk is a planned community subject to the North Carolina Planned Community Act, Chapter 47F of the North Carolina General Statutes. The community is governed by, among other things, the terms of an Amended and Restated Declaration of Covenants and Restrictions of The Headwaters Property Owners Association, Inc., (the “Declaration”). The Headwaters Property Owners Association, Inc. (“POA”) is a non-profit corporation that administers and manages the Headwaters community.

         Under the Declarations, all property owners in the Headwaters development are members of the POA by virtue of owning lots in the development. The POA is also governed by the POA Bylaws, which require the POA to hold annual membership meetings. The Bylaws further provide that POA members shall elect a board of directors (the “Board”) to conduct the affairs of the POA at their annual meetings. As of the Petition Date, the Debtor was the largest stakeholder in the POA, owning approximately 36 of the 158 lots and condominium units in the development.

         C. The Dispute Between the Debtor and the POA

         Before the Petition Date, a dispute arose between the POA and the Debtor over the Debtor's alleged failure to pay association dues. The Debtor denied that it owed any such prepetition dues to the POA because it prepaid POA dues and that it was also entitled to offset against its future dues obligations based on loans and advances it previously made to the POA. The POA filed three civil actions in Avery County Superior Court related to, among other things, the dispute over unpaid dues and the encumbrance of certain real property owned by the Debtor (the “Civil Actions”). The Civil Actions were stayed when the Debtor filed its chapter 11 case, and they were subsequently dismissed. The POA filed a proof of claim, asserting a claim in excess of $1, 000, 000 against the Debtor's bankruptcy estate.

         D. The Bankruptcy Court's 2016 Election Order

         In response to the Debtor's bankruptcy filing, on June 18, 2015, and June 23, 2015, the POA informed all lot owners that its 2015 annual meeting and mandatory Board election were cancelled. The Board then in existence refused to schedule the election or meeting despite petitions from other homeowners to conduct the meeting. On August 28, 2015, the Debtor filed a motion to compel an annual meeting of the POA and a Board election (the “Election Motion”). The POA responded by, among other things, arguing that the POA should not have to conduct the mandatory election unless it could suspend the estate's voting rights based on its unpaid post-petition dues. The bankruptcy court granted the Election Motion and overruled all objections asserted by the POA in its Order Compelling Annual Meeting, Board of Directors Election, and Granting Related Relief on January 13, 2016, (the “Election Order”). (Doc. No. 3-1, Election Order, Ex. 1). In pertinent part, in the Election Order, the bankruptcy court held that:

The automatic stay of 11 U.S.C. § 362(a) prevents the Headwaters POA from attempting to prohibit the Debtor from exercising its voting rights [and that] [g]ranting the relief requested in the Election Motion is both necessary and appropriate to: (i) protect the estate's voting rights and rights of participation in the Headwaters POA, and (ii) enforce the automatic stay set forth in 11 U.S.C. § 362(a).

(Id. at 7, ¶ 40). The bankruptcy court held that the estate's property rights include: “(i) the right to membership in the POA; (ii) the right to vote its lots in meetings of the POA; (iii) the right to elect Board members to govern the POA; [and] (iv) the right to a properly constituted Board to govern the POA….” (Id. at 8, ¶ 42). The bankruptcy court also found that “[u]nder section 541 of the Bankruptcy Code, these rights are property of the bankruptcy estate.” (Id. at 8, ¶ 43). Importantly, the bankruptcy court held that “section 362(a)(3) would act to stay any attempt by the Board to strip the Debtor of voting rights for its alleged failure to pay post-petition dues where, as here, the parties have a long running dispute regarding the amount of any dues owed by the Debtor to the Headwaters POA.” (Id. at 8, ¶ 44). The POA did not appeal the Election Order, nor did it seek relief from the Election Order under Rule 60 of the Federal Rules of Civil Procedure.

         E. No. POA Elections Are Held in 2016-2018 and the Trustee's ...

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